Qualcomm Inc. had its worst day in two-and-a-half years as the chip maker disclosed its ongoing drawdown of phone handset inventory. Analysts, however, found a silver lining amidst the “lackluster” results.
Declining Share Performance
On Thursday, Qualcomm (QCOM) witnessed a significant decline in its shares, plummeting by 8.2% to close at $118.70. This marks the worst one-day performance since February 4, 2021, when the company faced an 8.8% drop due to pandemic-related supply constraints negatively impacting results.
Weaker Smartphone Demand and Lighter Outlook
Qualcomm’s cautious outlook came to light Wednesday evening, when the company announced that it anticipated a quarter that would fall short of expectations. The ongoing drawdown of inventory is directly linked to weakened demand for smartphones. Qualcomm reported a 15% decrease in handset revenue, amounting to $5.26 billion compared to the same period last year. Looking ahead, the company projected that handset units for 2023 would experience a decline of “at least a high-single-digit percentage” compared to the figures in 2022.
Analyst Perspective: Lackluster Results
Bernstein analyst Stacy Rasgon, who has an outperform rating and a $135 price target on Qualcomm, described the results as “lackluster (though presumably not surprising).” He highlighted that this outcome was in line with the company’s previous forecast from a quarter ago.
Anticipating Future Challenges
In May, Qualcomm faced a decrease in its stock value when it revealed plans to continue drawing down inventory for at least the next couple of quarters.
Qualcomm’s Revenue Outlook Aligns with Expectations
Analysts are not surprised by Qualcomm’s latest revenue outlook, which appears to be in line with expectations. Susquehanna Financial analyst Christopher Rolland, who maintains a positive rating on the company, adjusted his price target to $145, citing a disappointing inventory drawdown. However, Rolland believes that Qualcomm’s bottom line is now on the upswing.
Rolland also expressed confidence in Qualcomm’s CEO, Cristiano Amon, stating that the company is successfully expanding beyond its traditional role as a modem and cellular IP provider. With continued weaknesses in handsets, inventories, and the macroeconomic environment, Qualcomm may experience a slower recovery, but it remains poised to become a major player in the semiconductor industry.
FactSet data reveals that out of 33 analysts covering Qualcomm, 21 rate the stock as a buy, 11 rate it as a hold, and only one rates it as a sell. The average target price stands at $135.48.
Despite some setbacks, Qualcomm’s shares have performed well this year, with an 8% increase year-to-date. This compares favorably to the 46.4% gain by the PHLX Semiconductor Index, the 17.3% gain by the S&P 500, and the 33.4% gain by the tech-heavy Nasdaq Composite Index.